GE: Bringing Good Things Back to Life

For years, General Electric (GE) has suffered from perceptions of mediocrity, and its stock price has stayed relatively flat. But its revenues and margins have been growing steadily, and its second-quarter results showed revenues up 12% over the second quarter of 2006, 8% of which came organically, and investors are paying attention again. The stock is now trading at a long-time high of $40, and a Goldman Sachs analyst report this week predicted the stock would reach as high as $45.

GE's success has resulted in large part from a continuing boom in global infrastructure needs, and all its divisions have been doing well of late except NBC and its health-care sector. The company has benefited from global trends, but CEO Jeffrey Immelt continues to make improvements, from investing in a major buyback program of $14 billion to getting out of the plastics business to, most recently, announcing GE would exit the subprime mortgage industry. GE's subprime division, WMC Mortgage, was a tiny part of the company, but Immelt was smart to avoid losing any more money, and to avoid the kind of negative publicity that has hit firms like Bear Stearns that are deeply involved in that failing industry.

GE does face some risk from rising commodity prices, but the company should be able to offset these costs through higher pricing and the leverage resulting from its enormous size -- and certainly its margins are strong enough to suffer some narrowing without significant damage.

With the market coming back to the large caps, and no sign of slowing in India or China, this is a company to buy and hold for a long time.

Type of stock: The consummate blue chip large-cap stock that has been "dead in the water" for the past two and half years and finally starting to ascend!

Price target: GE may be at its 52-week high, but it should keep rising. If you can buy close to $40 and hold for a while, you'll be glad you did -- especially with the additional profit coming from a dividend yield of nearly 3%. If it drops below $40, you'd be crazy not to buy it. But keep your eye on China and India -- if their growth starts slowing, GE could suffer.

GE 1-yr chart: